Regulator seeks more power to rein in errant directors

The capital markets regulator is seeking powers to take errant directors of listed companies to court to safeguard investor confidence in instances where firms are rocked by management disputes.

The Capital Markets Authority (CMA) said on Tuesday recent boardroom wrangles at motor dealer CMC and cement firm East African Portland Cement Company (EAPCC) had exposed investors to potential losses, yet the regulator’s hands were tied it does not have legal powers to intervene in internal operations of listed firms.

The watchdog yesterday suspended EAPCC’s shares from trading at the Nairobi Securities Exchange for two months, re-affirming a trading halt enforced by the bourse about three weeks ago.

“CMA is seeking powers to enforce corporate governance guidelines and take directors of listed companies directly to court for misusing company resources,” said Kung’u Gatabaki, chairman of the CMA.

“Any directors who will be found to have directly breached governance rules will also be barred from sitting on the board of any other listed company,” he added.

Lack of powers to intervene has hampered the regulator’s ability to step in even when the interests of minority shareholders are deemed to have been threatened by poor management of listed firms.

Peter Mwangi, the chief executive of the NSE, said suspension of EAPCC shares would protect investor confidence at the bourse.

In the past four months alone, allegations of mismanagement and power struggles have rocked the two listed companies, leading to the suspension of shares of car dealer CMC in September.

The authority says its mandate is limited to ensuring the listing requirement are met and enforcing transparent trading of shares, making it as spectator in investigating claims of breach of management guidelines — a situation that exposes the interests of the minority shareholders to risks.

Mr Gatabaki said negotiations are ongoing to amend the CMA Act in consultation with the Attorney General’s office to afford the regulator more muscle to enforce compliance with corporate governance rules.

Job Kihumba, a director at the Centre for Corporate Governance, said that giving more powers to CMA would not necessarily solve the emerging governance disputes.

“It could lead to a miscarriage of justice and confusion because they could abused,” said Mr Kihumba.

“But it is the same authorities that have a better understanding of specific fields so the case can be argued on both sides,” he added.

Suspension of the shares of the two firms from trading was taken as a stop gap measure to deter panic selling, especially by minority shareholders who would otherwise expose them to losses as the valuations on the stocks would be depressed by the sell offs.

In the latest case involving EAPCC, the markets regulator expects that the ownership and control woes that have dogged the firm would have been resolved by April 13 when the suspension of its share is expected to be reversed, but noted that it could be extended further.